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Business Payment Support Scheme: detailed assessment

The Business Payment Support Scheme (BPSS) has a number of detailed technical consequences. These are discussed below.

Interest on late paid tax

All payments which are made beyond the normal due date will be subject to interest calculated according to the standard rules. The current interest rates on tax which could be the subject of BPSS are from 6 January 2009:

Income tax, NIC, Capital Gains Tax – 4.5 per cent

Corporation tax – 4.5 per cent

For larger companies, due to pay tax by instalments the rate was last reduced on 15 December 2008. A further reduction is due in January 2009 to mirror the 0.5 per cent cut in the bank rate. The current rate is:

Underpaid corporation tax instalments – 3.00 per cent

Penalties for late payment

For those taxes for which there is a late payment penalty, which relates mainly to income and capital gains tax, the surcharge due on 28 February will not apply to tax debts where a time to pay arrangement has been put in place through BPSS before the tax becomes due.

This surcharge of 5 per cent would normally apply to any 2007/08 tax which remains unpaid at 28 February 2009, having been due for payment on 31 January 2009. The surcharge will be waived only if the taxpayer adheres to the time to pay arrangement. Similar arrangements will apply to the additional surcharge due in July, provided the agreed arrangement has been met, and payments made by the agreed dates.

VAT default surcharge

Submitting a late return or making a late payment triggers VAT default surcharge. Each late return or late payment then triggers a default surcharge penalty, and extends the default surcharge by a further three months.

Provided returns continue to be filed on time, VAT liabilities which are the subject of a time to pay arrangement through BPSS will not attract default surcharge, and those traders already subject to the surcharge will not see their default period extend as a result of late payment.

Once again, the waiving of this penalty depends on the agreement being reached before the VAT is overdue, and the payment schedule being adhered to.

Agent authority

In order for the agent to deal with this effectively there must be a 64-8 agent authority in place. Where an agent is dealing with a partnership, he will need to hold authority for both the firm and the individual partners who need to arrange time to pay.

Agent authorisation is quickest if dealt with online, but otherwise agents should send the agent authority to the CAAT team in Newcastle, and not their local district office.

Advice for lawyers

Members of the Law Society have specific guidance provided by their professional body, which reached an agreement with HMRC in December 2008. This guidance explains the HMRC BPSS and how to apply. See http://www.lawsociety.org.uk/productsandservices/practicenotes/taxdifficulties/1757.article